Apple keeps signaling that it doesn't care about market share, at least not enough to buy share by lowering the iPhone's price or introducing a significantly lower cost model. Doesn't Apple see that Android's smartphone market share keeps growing, aren't they going to do something about it? I'll focus on smartphones here, but much of this also applies to tablets.
Why Apple doesn't care about market share
Of course Apple cares about market share to some degree, but here's why they're not going to drastically lower prices anytime soon:
- Growth in the smartphone market has been driven by very cheap Android phones, especially from domestic companies in China and India
- Apple owners use their devices much more than Android users, and spend more on apps and online purchases
- They are still the most profitable smartphone company
Apple is still doing pretty well in the US and some other developed markets, but Android is winning in large developing markets and Europe. Apple is still selling a lot of iPhones in places like China and India, but their market share is suffering. However, that's partly because there are $100-$200 smartphones (without a contract) flooding the market in these countries. There are lots of great high-end Android phones available from Samsung, HTC, Sony, etc but also enough cheap phones to drag the average worldwide price down to less than half of what iPhones sell for.
Some analysts compare these cheap Android phones to glorified feature phones with a touch screen. By defining them as 'smartphones' the overall market appears larger and high-end phones appear to have a smaller share. So Apple appears to not be growing as fast as the overall market, but in reality they're probably doing just fine (but not great) in the market for high-end smartphones. Samsung is actually starting to have the same problem and local company Xiaomi led sales in China at the end of 2013.
iPhone users also tend to use their phones much more than Android users do. They surf the web more and download more apps. Business Insider has a very interesting article outlining how iPhone users are worth up to four times more than Android users to app developers and e-commerce sites. App developers continue to develop for iOS, knowing that they have a better shot at monetizing Apple users than Android users. Apple seems to be ok with having a smaller community of highly engaged users.
"Apple's market share is bigger than BMW's or Mercedes's or Porsche's in the automotive market. What's wrong with being BMW or Mercedes?" -Steve Jobs
Steve Jobs once compared Apple's market share to that of luxury car companies. Apple is running very profitable smartphone and tablet businesses. Their priority is to make great products while making lots of money. Remember when netbooks were all the rage and everyone was clamoring for Apple to make one? They refused to compromise on their standards. Eventually the market realized netbooks were nothing more than cheap crappy computers (and I personally think they only caught on as much as they did due to the poor economy at the time). Apple went on to introduce the iPad at a price roughly double what netbooks were selling for.
It's not time to worry - yet
Apple's products are still status symbols and the best all-around smartphone and tablet on the market in my opinion. They're also complemented with rich content and app ecosystems. But it's not a completely rosy picture. The high-end smartphone market could slow down or even contract. Apple's overall revenue from the Americas (North and South America) in the quarter ended December, 2013 actually declined 1% year over year. The Americas is still their largest geographical market by far and the only major market that declined over that period. (Rest of Asia Pacific, which does not include China or Japan, also declined 9% year over year.) In some of their key markets, Apple is reliant on a business model where consumers upgrade their smartphone every two years when their wireless contract is renewed. This model isn't prevalent everywhere in the world, including a lot of countries where Apple doesn't have great market share. People may start keeping their phones longer if more US carriers drop device subsidies like T-Mobile has and new models offer less significant improvements over their predecessors. When paying full price that $400 Moto X or $350 Nexus 5 looks enticing.
Apple needs to keep making 'must-have' products so consumers feel compelled to upgrade every year or two. They also learned a lesson with the iPhone 5c and iPad Mini: people want the latest and greatest from Apple. If they're going to introduce a lower-priced product it needs to be differentiated from the high-end device while also carrying a significantly lower price. When the iPad Mini was introduced it stood out from the full-size iPad and cost $170 less. The iPhone 5c didn't stand out enough from the 5s and the $100 price difference wasn't enough to entice consumers. Perhaps a $400-$450 iPhone 6c with the existing 4" screen alongside a larger iPhone 6 will be a big enough difference and win over some customers in Europe and developing markets.